Share Plans Explained – MM&K Fact Sheets

Back to the basics – what are share plans?

Share plans are means for companies to reward employees. Most often, these plans are established to improve motivation and boost productivity, by giving employees a stake in the company or share options. The more profitable the company gets, the more likely it is that employees will get better returns.

Share plans also enable companies to transfer ownership to those working within the business, with the aim of eventually leading to a management buy-out. This is a good way for owners to transfer shares gradually while obtaining tax relief advantages.

Our fact sheet can introduce you to the fundamentals of different share plans.

Understanding “Approved” Share Plans

There are two types of plans; Approved Plans, which have income tax and National Insurance contribution advantages, and Unapproved Plans, which do not offer these advantages, but are not subject to qualifying conditions, allowing more flexibility.

The table below shows the main differences between the two most common plans approved by HMRC:

• Company Share Option Plan (CSOP) and Enterprise Management Incentives Plans (EMI).

Read more

The two other Approved Plans explained in details in our fact sheets are:

• Share Incentive Plan (SIP)

This plan allows employees to hold shares in the company through Free Shares, Partnership Shares or Matching Shares. All employees are eligible if they reside in the UK and have been employed for a qualifying period. Read more

• Saving related Share Option Plan (SAYE)

With this plan employees can save a regular amount (from £5 to £500 per month) for a period (from 3 to 5 years) at the end of which they are paid a tax-free bonus. When employees start the saving contract, they are also given the option of buying shares with their savings. Read more

Other fact sheets

Once the fundamentals of share plans are understood, there are still other issues that need to be understood. For those wanting to gain extra insight, we have clear and knowledgeable factsheets which explain more about:

• Employee Benefit Trusts (EBT) Read more
• Entrepreneurs’ Relief Read more
• Disguised Remuneration Read more

How Can We Help?

MM&K can assist with all aspects of the design, rules drafting and implementation of business-driven pay and reward strategies.

Please contact Elisa Cobetto for any queries.

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